Confluent, Inc. (CFLT Q1 FY2024 earnings call

• Strong start to the year with total revenue growing 25% to $217 million, exceeding guided metrics. • Confluent Cloud revenue grew 45% to $107 million, the fastest-growing offering. • Non-GAAP operating margin improved 22 percentage points, fourth consecutive quarter of over 20 points improvement. • Launched consumption transformation, oriented sales compensation towards incremental consumption and new logo acquisition, added 160 customers (largest sequential growth since Q1 '23). • Hosted Kafka Summits in London and Bangalore, highlighting growth in data streaming category. • Announced major product innovations: general availability of Flink, early availability of Tableflow, and support for AI models in remote inference in Flink SQL. • Gen AI traction with customers leveraging Confluent's technology for RAG-enabled workloads.

Total revenue grew 25% to $217 million. Confluent Cloud revenue grew 45% to $107 million, accounting for the majority of subscription revenue and 49% of total revenue. Confluent Platform revenue grew 15% to $100.1 million, representing 46% of total revenue. Revenue from the U.S. grew 23% to $127.4 million, and revenue from outside the U.S. grew 28% to $89.8 million.

• Q2 2024: Total revenue expected to be $229 million to $230 million (21%-22% growth), subscription revenue $217 million to $218 million (23%-24% growth), Cloud revenue ~$116 million (39% growth), non-GAAP operating margin ~negative 1%, non-GAAP net per diluted share $0.04 to $0.05. • FY 2024: Total revenue expected ~$957 million (23% growth), subscription revenue ~$910 million (25% growth), non-GAAP operating margin breakeven, free cash flow margin breakeven, non-GAAP net income per diluted share $0.19 to $0.20. • Net dilution for FY '24 expected ~3%, long-term target under 2%.

Q: Sanjit Singh from Morgan Stanley asked about new software development projects and sales transformation efforts.

A: Edward Kreps said overall stabilization seen, consumption transformation went well with higher new customer acquisition and targeting higher propensity customers.

Q: Sanjit Singh asked about monetization strategy across DSP pillars and Tableflow monetization.

A: Edward Kreps said each pillar has distinct monetization, connectors charged per instance/volume, Flink by compute hours, Governance by flat fee and usage, Tableflow in early access with future monetization.

Q: Matthew Hedberg from RBC asked about hyperscaler trends and Flink contribution.

A: Edward Kreps said consumption transformation and DSP components important, Rohan Sivaram said Flink material contribution in FY '25.

Q: Raimo Lenschow from Barclays asked about Flink adoption curve and RPO.

A: Edward Kreps said Flink adoption positive, Rohan Sivaram explained RPO not a huge focus due to consumption transformation.

Q: Jason Ader from William Blair asked about Gen AI impact on revenue and products.

A: Edward Kreps said Gen AI ramping, using full platform, contributions to come next year.

Q: Michael Turrin from Wells Fargo asked about go-to-market changes and confidence in guide.

A: Rohan Sivaram said early indicators positive, Q1 performance strong, guide derisked second half.

Q: Gregg Moskowitz from Mizuho asked about Tableflow adoption and SI program.

A: Edward Kreps said Tableflow has potential, SI program in early innings but opportunity exists.

Q: Michael Cikos from Wells Fargo asked about go-to-market and customer quality.

A: Edward Kreps said incentives targeted high potential customers, Rohan Sivaram said early indicators positive, momentum carried into Q2.

Q: James Wood from TD Cowen asked about pricing changes and financial services.

A: Edward Kreps said pricing changes reduced friction, financial services seeing strong Confluent Cloud adoption.

Q: Peter Weed from Bernstein asked about Confluent Platform revenue.

A: Rohan Sivaram said Platform grew 15% YOY, pleased with momentum, Flink on-prem helps.

Q: Howard Ma from Guggenheim asked about RAG architectures and Open Source Kafka conversions.

A: Edward Kreps said Confluent strong in real-time data movement, migration accelerator ramping up.

Q: Pinjalim Bora from JPMorgan asked about cloud consumption ramp and Gen AI customers.

A: Rohan Sivaram said broad base of customers saw stabilization, newer customers and Gen AI customers contributing.

Q: William Miller Jump from Truist Securities asked about Governance and gross margin.

A: Edward Kreps said AI driving Governance, unit economics developing, Rohan Sivaram said gross margin expected to remain above 75% target.